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Moody's Predicts $82m Fiscal Deficit Overshoot

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Moody's is predicting that the government will overshoot its 2019-2020 deficit target by more than $82m and take longer than anticipated to produce the budget surplus it is seeking.

The international credit rating agency, in its latest update on The Bahamas' sovereign creditworthiness, forecast that the deficit for this current fiscal year will come in at 1.6 percent of economic output - a sum equivalent to $219.2m.

This is some $82m higher than the $137m worth of "red ink" projected when the Budget was unveiled in May, with the government then voicing its optimism that the deficit - which measures by how much government spending exceeds revenue - would hit the one percent of GDP demanded by the Fiscal Responsibility Act.

Moody's, though, justified its more cautious assessment of The Bahamas' push to slash nine-figure annual deficits on the basis of the government's consistent past inability to hit its fiscal objectives.

"The government is targeting a deficit of one percent in 2019-2020, and 0.5 percent in 2020/-2021," Moody's said. "Because the government has not yet established a track record under its new fiscal rules, our baseline projections are slightly more conservative than the government's.

"We expect a fiscal deficit of 1.6 percent of GDP in 2019-2020, and deficits slightly wider than the government's targets in subsequent years." The rating agency expressed similar sentiments about the just-completed 2018-2019 fiscal year, suggesting the government may again have overshot its deficit target - this time by $63.6m to take it to $292.6m.

"We expect the deficit to have reached 2.3 percent of GDP in fiscal 2018-2019, which is above the budget's target of 1.8 percent of GDP but below the 3.4 percent recorded in 2017-2018, as the government recognised 1.4 percent of GDP in arrears and took new expenditure-increasing initiatives, despite raising the VAT rate to 12 percent from 7.5 percent previously," Moody's said.

"During the first nine months of the fiscal year, government revenues grew by 15 percent whereas expenditures increased by five percent compared to the same period in the previous fiscal year. VAT receipts increased by 20 percent as a result of the tax hike whereas capital expenditures contracted by 31 percent during the first nine months of fiscal 2018-2019.

"Moreover, revenue collection for 2018-2019 likely missed the initial budgeted forecast due to delays in implementation of new tax initiatives (for example, on gaming houses), as well as lingering collection issues for some taxes such as property taxes."

Moody's nodded its overall approval of the Government's fiscal consolidation plan, predicting that the reduced fiscal deficits coupled with slightly higher economic growth will start to lower The Bahamas' debt-to-GDP ratio, although improvement will be slow and take some time to come within range of the Fiscal Responsibility Act's 50 percent target.

"Notwithstanding the slow growth recovery, we expect the Government's fiscal consolidation efforts, supported by the new fiscal rules, to contribute to a stabilisation of the debt trend," the rating agency added.

"We forecast the debt-to-GDP ratio to peak at 59.6 percent in fiscal 2018-2019, which remains above the 53 percent median of Baa-rated peers, before declining to 59.1 percent and 57.3 percent in fiscal 2019-2020 and 2020-2021, respectively."

Moody's also hailed The Bahamas' 1.6 percent GDP growth for 2018 as "credit positive", even though this came in below the rating agency's own 2 percent estimate. It is holding to the same 1.8 percent GDP expansion forecast for 2019 as the International Monetary Fund (IMF), believing there are sufficient foreign direct investment (FDI) projects in the pipeline to offset the impact of any US or global slowdown.

"In 2018 the economy started to recover by reporting an expansion of 1.6 percent in real terms, up from 0.1 percent one year earlier. Although the final growth figure came below our estimate of about 2 percent, this recovery after several years of subdued economic performance is credit positive," Moody's argued.

"We expect the economy to expand by 1.8 percent and 1.7 percent in 2019 and 2020, respectively, supported by tourism and foreign direct investment. Fiscal consolidation, both in terms of restrained public spending and higher taxes on consumption, however, may weigh on growth over the coming years.

"The anticipated slowdown in US growth will likely also weigh on The Bahamas' economic outlook. However, this will be partially compensated by the development of the new tourism-related projects that will allow economic activity to remain around its growth potential of 1-2 percent," the rating agency continued.

"Growth has been driven by the tourism sector and foreign investments that have fuelled construction. Tourist arrivals by air increased by 13.8 percent in 2018 after contracting 0.8 percent in 2017. International passenger departures from the Nassau airport were the highest since 2012, supported by the opening of the Baha Mar."

Moody's also zeroed in on Project Sand Dollar, the Central Bank-driven initiative to improve access to financial services and social inclusion by creating a digital version of the Bahamian dollar.

Echoing the IMF's recent assessment, it said: "Through the issuance of an e-currency, the Central Bank intends to improve access to financial services, increase the efficiency of the payments system and reduce cash transactions to tackle money laundering.

"The digital version of the Bahamian dollar can be used for both retail and wholesale purposes and will rely on block-chain technology. The IMF has pointed out that the adoption of an e-currency could entail risks related to cybersecurity and financial stability, and therefore requires compatibility with the current financial infrastructure."

Comments

DDK 3 months ago

The more they get, the more they spend. They do not actually care. They know no other way. It is a lose lose situation.....

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birdiestrachan 3 months ago

The post office in Mr: Symonette' s building is a added expense. and so is The house rented for C<A< Smith. Doc travels a lot does he charter planes.? The other expenses who knows. These fellows live high.

And the poor people pay VAT.

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truetruebahamian 3 months ago

Everybody pays VAT, BS, you cannot be as dim as you make yourself out to be. Give these guys a chance. The repair work is costly, and the plp did the greatest damage. We have to tighten our belts and get back on track - which is what we are doing - even though Minnis is Minnis.

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Porcupine 3 months ago

"We expect the economy to expand by 1.8 percent and 1.7 percent in 2019 and 2020, respectively, supported by tourism and foreign direct investment. Fiscal consolidation, both in terms of restrained public spending and higher taxes on consumption, however, may weigh on growth over the coming years." Yes, may weigh on growth and cause untold suffering of many of our people. What a great way of saying that for these numbers on paper, the poorest Bahamian people will shoulder the burden of pleasing the foreign masters of finance. We already know that the concessions made to the foreign investors involve less duty, taxes, and often free land. Leaving more of the cost of running this country, including the costs associated with the growth of tourism and financial services, on the backs of the poorest "consumers." Politicians love this, as they can then bamboozle their not-so-educated constituents with the promise of more jobs, while doing nothing save for giving this country away to those who will take their profits into safer jurisdictions as quickly as they can. It is not that the papers are not replete with pictures and stories of the many Bahamians who are suffering still, after decades of these same failed policies. Yet, as DPM Turnquest has stated regarding OBAN, "the people here still want it". Of course they do. Because the leadership of this country has failed to provide the guidance and resources to carry our people into the future. The best we can do now, is to grovel at the feet of an industry that is outdated and part and parcel of the greatest threat to the survival of life on this planet. Go figure.

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DDK 3 months ago

Sadly, I fear you are quite right Porcupine. It looks grim indeed. I don't think there exists a shovel large enough to dig ourselves out of the lovely mess caused by decades of corruption and inefficiency on the parts of our successive governments.

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Porcupine 3 months ago

For an even deeper analysis of what may be driving much of this is a letter to the editor in today's Nassau Guardian titled, A friendly letter to the minister of works, by Fayne Thompson. I tend to agree with his thoughts and see the eventual sell-off of most of our national assets, put up as collateral for loans that those making, and taking, the loans know we simply CAN NOT pay back.

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Well_mudda_take_sic 3 months ago

How many time have many of us heard our parents and/or grandparents say that no self-respecting white man, no matter how racist he might be, would ever treat a fellow black man as badly as a corrupt black politician?

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Well_mudda_take_sic 3 months ago

The irony in our dimwitted PM Minnis okaying the anointment posthumously of Pop Symonette as one of our country's National Heroes escapes few of us.

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truetruebahamian 3 months ago

Sorry, but Pop deserves a place of highest honour in our history. You obviously did not know the man and his fairness to all Bahamians.

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